Help To Buy Mortgage Scheme Not Yet Proved Good Value, MPs Warn

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MIDDLEWICH, ENGLAND - MAY 20: Marketing signs adorn the front of new homes on a housing development on May 20, 2014 in Middlewich, England. Official figures have shown that house prices have risen by 8% in the year ending in March. There have been calls by some experts for the UK Help to Buy scheme to be scaled down as it boosts the property market. (Photo by Christopher Furlong/Getty Images)

George Osborne's flagship mortgage guarantee scheme Help to Buy has yet to demonstrate that it is providing value for money, an influential committee of MPs has found.

The House of Commons Public Accounts Committee (PAC) warned that the scheme - under which government equity loans finance up to 20% of the purchase price of homes worth up to £600,000 - has created a "medium and long-term risk to the taxpayer" in the shape of a £10 billion portfolio of loans which will impose a "heavy administrative burden" for decades to come.

In a new report, the spending watchdog said the scheme, which was launched by the chancellor, was introduced smoothly and quickly last year and helped 13,000 home-buyers within nine months.

But it noted that Eric Pickles's Department for Communities and Local Government (DCLG) violated Treasury guidelines by failing to carry out any assessment of alternative options before going ahead with the scheme.

Committee chair Margaret Hodge said: "This means it has committed to spending up to £10 billion on supporting Help to Buy without establishing whether it represents the most effective way of using taxpayers' money to achieve its objectives.

"The department will not carry out a comprehensive evaluation of the scheme until 2015, by which time billions of pounds will already have been spent.

"That evaluation needs to ask three things: whether more people purchased properties than would have done without the scheme; whether builders built more houses than they would have built otherwise; and what effect the scheme could be having on house prices."

The PAC report cited Government estimates that 25%-50% of purchases through Help to Buy had led to the construction of a home that would otherwise not have been built. And it noted National Audit Office research and market intelligence gathered by the DCLG which indicate that it "may be improving the confidence and appetite" of developers to build more homes.

But it said that the scheme's impact had varied in different regions, proving more popular in the North of England and the Midlands and areas of major regeneration such as Milton Keynes, while gaining less traction in London and the South East, despite the fact that these are the areas with the greatest housing need.

"The department should assess the scheme's effectiveness in different local and regional housing markets and tailor the scheme so it is effective in all regions," said Hodge.

"The scheme creates a medium- and long-term risk to the department by building a £10 billion portfolio of equity loans that will require careful management.

"Managing such a portfolio is new territory for both the department and the Homes and Communities Agency, and the ongoing monitoring required will create a heavy administrative burden for both organisations, potentially over decades.

"There are also more immediate risks, particularly the fact that some buyers have accessed the scheme with deposits of less than 5%, which increases taxpayers' exposure to risk.

"The department must be mindful of these risks - and it must demonstrate that the scheme is value for money to the taxpayer."

Housing minister Kris Hopkins said: "The government completely rejects this report which sacrifices thorough analysis of Help to Buy in favour of a grandstanding headline.

"The Help to Buy: Equity Loan scheme is building more homes and supporting the economy - in fact we estimate the wider economic benefits could be as much as £1.8 billion.

"It is also offering excellent value for money for taxpayers' and to suggest otherwise and try and use the scheme to score cheap political points is absurd.

"Since the scheme's launch, house building is up a third and now at its highest level since 2007. And over 27,000 people across the country have used Help to Buy to get on the property ladder with a fraction of the deposit they would normally require, with cities including Leeds, Durham and Manchester seeing some of the biggest numbers of sales."

Labour housing spokeswoman Emma Reynolds said: "The report from the Public Accounts Committee raises concerns that the Government has not fully assessed value for money or how many new homes will be built as a result of this scheme. For such a significant investment, it is shocking that so little assessment has been made of the impact.

"The report also finds that the Government has failed to assess the combined effectiveness of its interventions in the housing market. With the number of homes being built at the lowest level in peacetime since the 1920s, it's clear that this Government isn't up to the job of tackling the housing shortage."